Builders are shrinking inventory

October 27, 2026

New home sales slipped 0.6% in September to a seasonally adjusted annual rate of 676,000. August was revised down slightly to 680,000. Sales are 5.3% below a year ago and are running 2.9% behind 2025 year-to-date. (New home sales are captured at the contract signing and reflect recent housing market activity.)

The South, the largest region, fell 6.6% to 413,000, the weakest pace since May. The Midwest fell 7.3% to 89,000. The West rose 21.4% to 142,000, the strongest since April, but remains 17.4% below a year ago. The Northeast rose to 32,000.

Sales of homes under construction cooled to 214,000 from 239,000 in August, while sales of completed homes held at 380,000. Builders are selling what they have and replacing it more slowly, consistent with single-family starts at their lowest in a year and single-family permits at their lowest since April 2023.

The median price of a newly sold home rose 3.9% to $400,400, back above $400,000 for the first time since June. August's median was revised down sharply to $385,400. The median is 3.9% below a year ago. The average price edged up 0.4% to $472,800 and is 6.7% below year-ago levels.

The jump in the median price reflects a shift in mix. Homes priced between $500,000 and $600,000 rose to 13% of sales from 9% in August. Homes under $300,000 eased to 20% from a revised 23%. Just over half of homes sold for under $400,000, compared with 46% a year ago. Despite the larger share of lower-priced sales, high borrowing costs remain a hurdle for first-time home buyers.

Discounting has intensified to keep completed inventories moving. The share of builders cutting prices jumped to 43% in October from 38% in September, the highest share since at least 2020. Roughly two-thirds of builders offered incentives in September, including mortgage rate buydowns. Builder sentiment fell to the lowest level in October since June 2012, according to the National Association of Home Builders. Buyer traffic drove those losses, which plummeted to the lowest level since April 2012, excluding the start of the pandemic. 

Inventory is slowly shrinking. Homes for sale fell 1.0% to 476,000, the lowest in two years. Completed homes for sale edged down to 111,000. Homes under construction for sale fell slightly to 250,000 from already subdued levels. Homes for sale where ground has not been broken rose to 115,000, up slightly from August.

The months' supply of new homes available for sale at the current sales pace edged down modestly to 8.4 months; about a six-month supply is considered balanced. The market is becoming more of a buyer’s market, with builders offering discounts to support sales. Finished homes took a median of 3.0 months to sell, the shortest since January, down from 3.5 months in the spring. The length of time that homes are on the market is still above year ago levels.  

Existing home sales fare better 

Separately, existing home sales rose 1.5% in September to a seasonally adjusted annual rate of 3.99 million, slightly above expectations. August was revised down to 3.93 million. Sales are 2.2% below a year ago, with all four regions posting annual declines. August and September were the two slowest months for sales this year, capping off more than two years of the housing market in a recession. Sales are captured at the contract closing and reflect activity from a few months earlier. 

Inventory rose 1.9% to 1.60 million units, a 4.8-month supply. The median price rose 1.3% from a year ago to $417,500, the 39th consecutive annual increase. First-time buyers accounted for 31% of sales. Investors and second-home buyers jumped to 20% of sales from 15% in August. Second homes tend to include more all-cash buyers, which leaves them less sensitive to mortgage rates. 

Mortgage rates averaged 6.86% in September, up from 6.67% in August. The 30-year fixed climbed to 7.40% in mid-October before easing to 7.32% in the week ending October 22, more than a full percentage point above the 6.19% of a year ago. Higher mortgage rates are but one of the hurdles to home sales.

A growing portion of existing homeowners have either paid in full for their homes or have locked in ultra-low rates. That is limiting the ability of workers to move for a job. A similar phenomenon occurred in the wake of the housing market bust, although back then the unwillingness to list was linked to the fact that too many homes were underwater on their mortgages. 

The Federal Reserve raised rates in September, and we expect another hike in December as inflation remains persistent. Mortgage rates, however, take their cue from longer-term Treasury yields and the mortgage-backed securities market, not just the Fed’s overnight rate. Bond investors are demanding compensation for inflation and fiscal risks, while heavy government borrowing and financing for the AI buildout intensify competition for capital. Those pressures can keep mortgage rates elevated even if the Fed pauses. Sustained relief will require greater confidence that inflation is coming under control.